Which of the following statements is most correct? If you add enough randomly selected stocks to a portfolio, you can completely eliminate all of the market risk from the portfolio. If you form a large portfolio of stocks each with a beta greater than 1.0, this portfolio will have more market risk than a single stock with a beta = 0.8. Company-specific risk can be reduced by forming a large portfolio, but normally even highly diversified portfolios are subject to market risk. Answers a, b, and c are correct. Answers b and c are correct.

Microeconomics: Principles & Policy
14th Edition
ISBN:9781337794992
Author:William J. Baumol, Alan S. Blinder, John L. Solow
Publisher:William J. Baumol, Alan S. Blinder, John L. Solow
Chapter9: The Financial Markets And The Economy: The Tail That Wags The Dog
Section9.A: Appendix Buying Stocks And Bonds
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Which of the following statements is most correct?

  1. If you add enough randomly selected stocks to a portfolio, you can completely eliminate all of the market risk from the portfolio.
  2. If you form a large portfolio of stocks each with a beta greater than 1.0, this portfolio will have more market risk than a single stock with a beta = 0.8.
  3. Company-specific risk can be reduced by forming a large portfolio, but normally even highly diversified portfolios are subject to market risk.
  4. Answers a, b, and c are correct.
  5. Answers b and c are correct.
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